China’s Encryption Law took effect on Wednesday with the government pledging to support companies and institutions developing the encoding process that ensures messages or information are only accessible by authorized parties.

Why it matters: The law is an effort to boost commercial encryption and set legal norms for the billion-dollar industry. The government has also promised to adjust related regulations.

China passes new cryptography law, laying ground for digital currency rollout

Details: The state rolled out the law as part of efforts to develop encryption’s commercial uses.

  • Foreign companies can participate. The law requires local governments not to discriminate against foreign-funded players and encourages cooperation on commercial encryption.
  • Local authorities are to include encryption in economic and social development plans and fiscal budgets. While the law does not state specific amounts, it could help local encryption startups.
  • Commercial encryption services must pass checks and obtain certifications if they involve national security and public interest.
  • Those that fail to use commercial encryption in accordance with this law and refuse to correct their actions will be fined between RMB 100,000 and RMB 1 million.

Context: Local governments have not been the best at safeguarding information and management of information has been loose. National education and civil service training will now include encryption.

  • This law is “tightening up the mess,” said David Li, executive director of the Shenzhen Open Innovation Lab. While China has had encryption tech for decades, officials were not using it, he added.
  • Two years ago, it was common practice for government officials to share unencrypted and cryptographically unsigned documents in WeChat groups.
  • China had regulations on commercial encryption as early as 1999 but rules were patchy.
  • The law marks another step in the Chinese government’s effort to legislate key areas of the internet and make sure that overarching legislation like the Cybersecurity Law and others related to core online infrastructure align. The law comes amid efforts to promote blockchain and digital currency.
  • Xin Luning, chief scientist at BJCA, told Sina Finance that “the whole encryption industry is facing a big development opportunity… these spaces used to be out of reach.” (link in Chinese).

Lavender Au

Lavender covers regulation and its effects on people. She previously worked in a policy advisory analyzing China’s internal governance for foreign governments and multinationals. A History graduate from...

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